Guidance on the

State Fiscal Stabilization Fund Program


U.S. Department of Education

Washington, D.C. 20202
April 2009

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Purpose of the Guidance
The purpose of this guidance is to provide comprehensive information on the State Fiscal Stabilization Fund Program. The guidance provides the U.S. Department of Education’s interpretation of various statutory provisions and does not impose any requirements beyond those included in the American Recovery and Reinvestment Act of 2009 and other applicable laws and regulations. In addition, it does not create or confer any rights for or on any person.
The Department will provide additional or updated program guidance as necessary. If you are interested in commenting on this guidance, please send your comments to .

Table of Contents

I. Introduction 1

I-1. What is the State Fiscal Stabilization Fund (Stabilization) program? 1

I-2. What is the statutory authority for the program? 1

I-3. What are the two components of the Stabilization program? 1

Illustration 1: The Two Funds 2

I-4. What overarching principles guide the distribution and use of all ARRA funds that the Department administers? 2

I-5. How does the Department determine the amount of funding that each State may receive under the Stabilization program? 3

II. Process for Awarding Funds to Governors 3

II-1. What is the Department’s process for awarding Stabilization funds to Governors? 3

Illustration 2: Commitment to Advancing Education Reform 4

II-2. How does a State demonstrate that the amount of Stabilization funds that it will receive in phase one is insufficient to prevent the immediate layoff of State or local personnel? 5

II-3. What is the application process for phase two funding? 5

Illustration 3: Federal Release of Funds 5

III. The Education Stabilization Fund 6

A. Eligible Entities 6

III-A-1. To which entities does the Governor make awards under the Education Stabilization Fund? 6

III-A-2. What is a “local educational agency”? 6

III-A-3. What is an “institution of higher education”? 6

Illustration 4: Entities Eligible for Funding under the Education Stabilization Fund 7

III-A-4. Are charter schools considered to be LEAs for purposes of the Stabilization program? 7

III-A-5. Must an LEA receive State funds through the State’s primary elementary and secondary education formulae in order to be eligible to receive Education Stabilization funds? 8

III-A-6. May Governors award Education Stabilization funds to private IHEs? 8

III-A-7. In restoring the levels of State support for public IHEs, may a Governor award Education Stabilization funds to a centralized State agency that administers insurance and pension costs for employees of public IHEs? 8

III-A-8. May a Governor award Education Stabilization funds to a State Higher Education Board that, for example, receives appropriated State student financial aid funds? 8

III-A-9. May the Governor award Education Stabilization funds directly to students for scholarships or financial aid or to support State-agency-run scholarship programs for students to attend public IHEs? 8

B. Restoring Levels of State Support for Education 9

III-B-1. What levels of State support must a Governor restore for elementary and secondary education and public IHEs? 9

Illustration 5: Education Stabilization Funding Process – Calculating Restoration Amounts, Releasing Funds, and Obligating Funds 10

III-B-2. What is meant by the term “fiscal year” for purposes of restoring levels of State support for education? 11

III-B-3. Are States required to use a particular formula in determining the levels of State support for elementary and secondary education and, as applicable, early childhood education programs and services? 11

III-B-4. May a State include local tax revenues in determining the levels of State support for elementary and secondary education? 11

III-B-5. May State categorical funds that are not awarded through a funding formula be considered part of a State’s support for elementary and secondary education for purposes of determining the amount of Education Stabilization funds that will be awarded to LEAs? 11

III-B-6. How does a State determine the level of State support for public IHEs for a given year? 11

III-B-7. How does a State calculate the amounts of Stabilization funds that must be awarded to LEAs and to public IHEs? 12

III-B-8. May a State choose to restore its level of State support for either elementary and secondary education or public IHEs, but not both? 13

Illustration 6: Restoring Levels of State Support 14

III-B-9. In calculating how its Education Stabilization Fund allocation will be distributed among LEAs and public IHEs, a State makes determinations on the levels of State support for elementary and secondary education and public higher education for various fiscal years. Are these levels of State support the same levels that a State must use for purposes of demonstrating compliance with the Stabilization program maintenance-of-effort (MOE) requirements? 15

III-B-10. Section 14002(a) of the ARRA directs how a State determines the amount of Education Stabilization funds that it will provide to LEAs and public IHEs. Once a State makes these determinations in accordance with that provision, does the Governor have discretion in determining when to release the funds to LEAs and IHEs? 15

III-B-11. May a Governor retain a portion of the State’s Education Stabilization Fund allocation to help defray the costs of administering the program or for other purposes? 16

C. LEA and Public IHE Application Requirements 16

III-C-1. Must an LEA submit an application to the Governor in order to receive funding under the Education Stabilization Fund? 16

III-C-2. May a Governor require an LEA to include in its local application for Education Stabilization funds information other than the required assurances and the GEPA 427 statement (if applicable)? 16

III-C-3. Must a public IHE submit an application to the Governor in order to receive funding under the Education Stabilization Fund? 17

Illustration 7: LEA and IHE Application Requirements 17

D. Uses of Education Stabilization Funds by LEAs 18

III-D-1. For what purposes may an LEA use Education Stabilization funds? 18

III-D-2. What are the statutory prohibitions on an LEA’s use of Education Stabilization funds? 18

III-D-3. Do the same statutory requirements govern the use of all of the Education Stabilization funds that a Governor awards to an LEA? 19

III-D-4. Are the Education Stabilization funds that the Governor awards to LEAs through the State’s primary funding formulae considered to be State funds, subject to the requirements that generally apply to funds awarded under those formulae? 19

III-D-5. If a portion of a State’s Education Fund allocation remains available after the Governor restores fully the levels of State support for elementary and secondary education and public IHEs, the Governor must award any remaining Education Stabilization funds to LEAs on the basis of each LEA’s proportionate share of funding under Part A of Title I of the ESEA. Would the use of these Education Stabilization funds be limited to activities authorized under Part A of Title I? 19

III-D-6. How much flexibility do LEAs have in determining the activities to support with Education Stabilization funds? 19

III-D-7. May an LEA use Education Stabilization funds to support activities or services other than the specific activities or services that were eliminated as a result of budget reductions? 20

III-D-8. In addition to restoring activities or services that were eliminated as a result of budget reductions, how might an LEA use its Education Stabilization funds to advance reforms? 21

III-D-9. To what extent may an LEA use Education Stabilization funds to support early childhood education programs and services? 22

III-D-10. May an LEA use Education Stabilization funds for modernizing, renovating, or repairing public school facilities? 22

III-D-11. May an LEA use Education Stabilization funds for construction activities that are not considered to be modernization, renovation, or repair? 22

III-D-12. May an LEA use Education Stabilization funds to supplement or restore its local “rainy day” fund rather than use the funds for specific purposes? 23

III-D-13. May an LEA use Education Stabilization funds to pay down past debt? 23

III-D-14. May a Governor or State educational agency (SEA) limit how an LEA uses its Education Stabilization funds? 23

III-D-15. Is an LEA required to provide equitable services for private school students and teachers with Education Stabilization funds? 24

Illustration 8: Summary – LEA Uses of Education Stabilization Funds 24

Illustration 9: Summary – Prohibitions on an LEA’s Use of Education Stabilization Funds 25

III-D-16. How long does an LEA have to obligate its Education Stabilization funds? 25

III-D-17. Does the Governor’s award of funds to an LEA or public IHE constitute an “obligation” of those funds? 26

E. Uses of Funds by Public Institutions of Higher Education 26

III-E-1. For what purposes may a public IHE use Education Stabilization funds? 26

III-E-2. Are there statutory prohibitions on an IHE’s use of Education Stabilization funds? 26

III-E-3. What types of “education and general expenditures” may an IHE support with Education Stabilization funds? 27

III-E-4. May an IHE use Education Stabilization Funds for modernizing, renovating, or repairing facilities? 27

III-E-5. May Education Stabilization funds be awarded to private IHEs to modernize, renovate, or repair their IHE facilities? 27

III-E-6. May an IHE use Education Stabilization funds to support new construction? 27

III-E-7. May an IHE use Education Stabilization funds to pay down existing debt? 28

III-E-8. May an IHE use Education Stabilization funds to supplement or restore a “rainy day” fund rather than use the funds for specific purposes? 28

III-E-9. Does a Governor have the authority to award Education Stabilization funds only to those public IHEs that agree to limit increases in tuition and fees paid by in-State students? 28

III-E-10. Does a Governor have the authority to restrict an IHE’s use of Education Stabilization funds? 29

III-E-11. How long does an IHE have to obligate Education Stabilization funds? 29

Illustration 10: Summary – IHE Uses of Education Stabilization Funds 29

Illustration 11: Prohibitions on an IHE’s Use of Education Stabilization Funds 30

IV. The Government Services Fund 30

IV-1. For what purposes may a State use its Government Services Fund? 30

IV-2. May a Governor use part of the State’s Government Services Fund to support administrative costs associated with implementing the ARRA, including costs related to monitoring subgrantees and complying with the ARRA reporting requirements? 31

IV-3. What are the statutory limitations on the uses of the Government Services funds? 31

IV-4. If a State chooses to use a portion of its Government Services allocation to provide assistance for elementary and secondary education, must the funds be awarded to LEAs through the State funding formulae or on the basis of the LEAs’ proportionate share of funding under Part A of TitleI? 32

IV-5. May a State use its Government Services funds for construction or infrastructure support? 32

IV-6. May a State use Government Services funds to construct, modernize, renovate, or repair a private school facility? 32

IV-7. May a State use its Government Services Fund allocation for paying down past debt? 32

IV-8. May a Governor use the Government Services funds to supplement or restore the State’s “rainy day” fund rather than use the funds for specific purposes? 33

IV-9. Does a Governor have discretion in determining when to use Government Services funds? 33

IV-10. How long are the Government Services funds available for obligation? 33

V. Construction, Modernization, Renovation, and Repair 33

V-1. May Stabilization funds be used for construction? 33

V-2. May Stabilization funds be used for modernization, renovation, or repair? 34

V-3. Are there specific types of construction, modernization, or repair activities that may not be supported with Stabilization funds? 35

V-4. What is meant by the term “modernization, renovation, or repair”? 35

V-5. Are there additional resources available on the construction, modernization, renovation, or repairs of schools? 36

V-6. Are there any wage requirements associated with the use of ARRA funds? 36

V-7. Does the ARRA include a preference for quick-start activities? 37

V-8. What certifications must be provided when funds under the ARRA are used for infrastructure investments? 37

VI. Maintenance of Effort 38

A. Stabilization Program Maintenance-of-Effort Requirements 38

VI-A-1. What are the specific maintenance-of-effort (MOE) requirements that apply to the Stabilization program? 38

VI-A-2. Will the Department require a State to provide MOE data in its annual Stabilization program reports? 38

VI-A-3. What is meant by the term “fiscal year” in determining whether a State meets the Stabilization fund MOE requirements? 38

VI-A-4. May a State demonstrate that it is complying with the elementary and secondary education MOE requirements in the ARRA on either an aggregate or a per-student basis? 38

VI-A-5. How does a State determine the levels of State support for elementary and secondary education or for public IHEs? 39

VI-A-6. In the Stabilization program application, a State must provide assurances that it will comply with the MOE requirements. What if a State anticipates, on the basis of the best available data, that it might not meet the MOE requirements for one or more years? 39

VI-A-7. What criterion governs whether the Department may grant a State’s request for a waiver of the Stabilization program MOE requirements? 39

VI-A-8. Does the same criterion apply to waivers of both the elementary and secondary education MOE requirements and the public IHE MOE requirements? 39

VI-A-9. For purposes of the MOE waiver criterion, what is meant by the term “total revenues available to the State”? 39

VI-A-10. Will the Department be issuing further guidance on the process for obtaining waivers of the Stabilization program MOE requirements? 40

Illustration 12: Applying the MOE Waiver Criterion 40

B. Using Stabilization Funds to Meet Other MOE Requirements 41

VI-B-1. To what extent may a State or LEA use Stabilization funds to meet the MOE requirements of other Federal programs? 41

C. Impact of MOE on a State’s Receipt of Race-to-the-Top Funds 42

VI-C-1. How might a State’s expenditures for elementary, secondary, and public higher education affect its ability to compete successfully for Race-to-the-Top funds? 42

VII. Transparency, Accountability, Reporting, and Other Obligations 42

VII-1. What are our shared responsibilities for ensuring that all funds under the ARRA are used for authorized purposes and instances of fraud, waste, and abuse are prevented? 42